USDC Issuer Seeks Rule Change in Europe; Central Bank Agrees
USDC issuer Circle wants Europe to eliminate the requirement that a certain portion of stablecoin reserves be held at banks, while the European Central Bank has also proposed replacing the requirement with a liquidity-focused approach.
According to The Block, Circle called for changes to reserve rules in its submission to the European Commission’s consultation on the crypto asset regulation MiCA. The consultation, which ended on September 30, also received input from the Hyperliquid Policy Center on how crypto futures should be regulated.
Why Doesn’t Circle Want to Hold Reserves at Banks?
Under the current rules, as reported by the outlet, e-money token issuers must hold at least 30% of their reserves in commercial bank deposits. For tokens classified as “significant” by the European Banking Authority, that ratio rises to 60%.
Circle argues that this requirement increases exposure to credit and counterparty risk in the banking sector. The company has experienced this risk before: after it disclosed in March 2023 that $3.3 billion of its reserves were held at Silicon Valley Bank, USDC temporarily lost its $1 peg as the bank collapsed.
The European Central Bank and the national central banks that make up the European System of Central Banks also proposed eliminating the minimum deposit ratio. Their approach instead emphasizes liquidity requirements based on a certain portion of reserves maturing within one and five business days. Circle also supports a more flexible minimum liquidity requirement.
Changes Also Sought for US Treasury Securities
Circle also wants to eliminate the rule limiting exposure to any single government to 35%. According to the company, this cap prevents dollar-pegged tokens from weighting their reserves toward government debt instruments such as US Treasury securities.
Another request concerns the provision limiting an issuer’s assets at a single bank to 1.5% of that bank’s total assets. Circle says large issuers would have to work with dozens of separate banks to meet this requirement.
The company also seeks to preserve the ability of an authorized entity in the EU to jointly issue the same global stablecoin with its regulated subsidiary abroad. It argues that restricting this arrangement could push users toward services outside the EU.
Hyperliquid Group Points to Existing Rules for Futures
The Hyperliquid Policy Center called for perpetual crypto futures contracts to be treated under MiFID II, which regulates financial instruments, rather than MiCA. The group argues that a product’s trading on a blockchain should not change its classification, which should be based on its economic characteristics.
The organization recommended that these products not be treated in the same category as contracts for difference, and that platforms disclose their funding methods, maintenance margin requirements, and liquidation thresholds in advance. Its request is less about passing a new law than clarifying how existing rules apply to these markets.